Insights

The proposed changes come at a time when in the last 2 years there have been over 1,200 construction companies in NSW alone enter into external administration and 12 months since the establishment of the Independent Inquiry into Construction Industry Insolvency. It is intended that the changes will provide greater protection for subcontractors and promote cash flow and transparency in the contracting chain.

The changes will apply to construction contracts entered into after the commencement of the amendments. However, there will be limited exemptions for small businesses operating in the residential building sector.

  1. Removal of the requirement for a payment claim to state that it is made under the Act

    This existing requirement is one that many contractors get wrong. Its removal will make it simpler for subcontractors to make valid payment claims under the Act.

    Principals and head contractors will need to treat all payment claims as being made under the Act and comply with the strict timeframes for both putting on a payment schedule if disputing and making payment.

    This requirement will however continue to apply for residential construction contracts connected with a residential construction contract between a head contractor and consumer (eg such as a contract between a builder and an electrician to do work where the builder has entered into a contract with a home owner).

  2. Due date for making progress payments

    Currently, the due date for payment is as specified in the contract, or if there is no express provision, then 10 business days after the payment claim is made. This allows the time for payment to be greatly in excess of 10 business days if there is inequality in bargaining power.

    It is proposed to significantly alter this timeframe and distinguish between payments from principals to head contractors and those from head contractors to subcontractors.

    This means that there will be 3 different timeframes for payment established and any term of a contract that allows for payment later than these will be deemed void:

    • payments to head contractors will be due 15 business days after service of a
    payment claim or an earlier date if specified in the contract.

    • payments to subcontractors will be due 30 business days after service of a
    payment claim or an earlier date if specified in the contract.

    • the existing timeframes for payment will be maintained for residential
    construction contracts connected with a residential construction contract.

  3. Payment claims to be accompanied by a supporting statement that all subcontractors have been paid

    There is currently no requirement under the Act for a payment claim to have a statement attached confirming that subcontractors have been paid.

    It is proposed to create an offence for a head contractor to serve a payment claim on a principal unless the claim is accompanied by a supporting statement to the effect that all subcontractors have been paid all amounts that have been due and payable. It will also be an offence to serve a statement that they know is false or misleading.

    The maximum penalty in both cases will be $22,000.

  4. Investigation of compliance with requirement for supporting statement

    It is proposed that there will be NSW Government officers who can require either the head contractor or associated persons to provide information or documents relating to compliance with the new provisions requiring supporting statements.

    A failure to comply can result in a maximum penalty of $22,000 or 3 month’s imprisonment.

Need more information on your rights under the Building and Construction Industry Security of Payment Act (NSW) 1999? Contact Amy Harper at Kells on (02) 4221 9311.